THE final figures are yet to come but it is reasonable to expect that economic growth in 2014 will be significantly lower than the 7.2 percent posted in 2013.
Socioeconomic Planning Secretary Arsenio Balisacan estimates that growth, in terms of Gross Domestic Product (GDP), in the fourth quarter should be at least 8.2 percent to reach the low end (6.5 percent) of the government’s target for the whole year, given the 5.8 percent growth for the first three quarters of 2014.
However, the last time the Philippine economy breached the 8.0-percent GDP growth level was in the second quarter of 2010, when it reached 8.9 percent. During that year, GDP grew by 7.6 percent, which remains a record.
The government has admitted that the slower growth in 2014 was due to lower spending on public projects. As a result, public construction contracted from a double-digit growth of 19.1 percent in the third quarter of 2013 to -6.2 percent in the same period this year. In contrast, private construction grew by 15.7 percent in the third quarter of 2014 compared to 1.6 percent a year ago.
The lower government spending in 2014 was due to issues surrounding the Priority Development Assistance Fund and the Disbursement Acceleration Program. This resulted in confusion and restrained spending. I think these issues have been addressed and government spending will be smoother beginning in 2015.
I consider the performance in 2014 as a break in the upward trek of the Philippine economy, which remains one of the fastest-growing in Southeast Asia.
My prognosis for the economy is good, both for 2015 and 2016. This is because our fundamentals remain strong. We are also seeing developments that are expected to improve our growth prospects.
Inflation, which measures the movement of prices of basic goods and services, slowed down to 3.7 percent in November 2014 from 4.3 percent in October. The government’s inflation target for 2014 is plus or minus 4 percent.
Interest rates also remain low.
During its meeting on December 11, the Bangko Sentral’s Monetary Board decided to keep its policy rates, which private banks use to set their lending rates, at 4.0 percent for overnight borrowing and 6.0 percent for overnight lending.
I believe fuel prices (gasoline and diesel) are a big factor behind the low inflation, and the decision of the Bangko Sentral to keep interest rates low.
In its update on economic prospects, the Asian Development Bank said declining oil prices could bring about a positive surprise for developing countries in Asia, like the Philippines, most of which are oil importers. The reduction in fuel prices is good for the business sector, especially for the real estate industry. I won’t call the current state of the real estate industry as a boom, but I see no reason to expect a serious drop in sales.
In addition, we are facing an election year. While the elections are scheduled for 2016, election-related spending will start by the middle of 2015, so it will have a positive impact on the economy as early as next year.
Election spending will peak in 2016, which means higher GDP growth. Hopefully, the high growth rates in 2015 and 2016 will be achieved with low inflation.
I think there will be “one-for-the-road” drive for infrastructure development. Traditionally, outgoing administrations want to leave as many visible projects as possible as part of their legacy. There’s a lot of work to catch up with respect to roads, bridges, ports and other infrastructure projects.
Another development that I believe will contribute to higher growth in the next two years is the return of President Aquino’s high approval and trust ratings. Based on the survey conducted by Pulse Asia in November 2014, the President’s ratings stood at 59 percent and 56 percent, respectively, making him the most trusted among the top five national government officials.
The President’s relentless campaign against corruption instills confidence on the minds of the people, which translates, in turn, to consumer confidence.
This was confirmed by a separate survey conducted by the Bangko Sentral.
According to the monetary authority’s Consumer Expectations Survey, which was conducted on October 1 to 11, consumer sentiment improved in the fourth quarter of 2014 compared to the same quarter in 2013.
The improved confidence, in turn, contributes to higher consumer spending, which continues to account for a major share of the economy’s growth.
These factors are on top of the traditional growth drivers, specifically the business process outsourcing industry, remittances from overseas Filipinos and the tourism industry.
I will continue the discussion on the country’s outlook, including the challenges to growth, next week. In the meantime, with the current year closing after tomorrow, let me wish all Filipinos a peaceful and prosperous New Year. (To be continued)
For comments, e-mail mbv.secretariat@gmail.com or
visit www.mannyvillar.com.ph.
source: Business Mirror Column of Sen. Manny Villar
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